Investors, worried about the state of the economy, rushed to long-term safe haven assets, pushing the yield on the benchmark 30-year Treasury bond to a new record low on Wednesday.
Traders remained on edge about the U.S.-China trade war and its impact on the global economy as weaker-than-expected data in China deepened the gloom in the world’s second-largest economy. Data published showed growth of China’s industrial output slowed to 4.8% in July from a year earlier, marking the latest sign of faltering demand in the country.
The U.S. equity market could be on borrowed time after the yield curve inverts. A recession occurred, on average, 22 months after the inversion. The S&P 500 actually enjoyed average returns of 15% 18 months after an inversion before it eventually turns. There have been five inversions of the 2-year and 10-year yields since 1978 and all were precursors to a recession.